The mood in West Texas is eerily like it was when the pandemic first hit, when oil prices plunged and companies stopped drilling, said D. Kirk Edwards, an oil and gas executive and former chair of the Permian Basin Petroleum Association.
“I think we are going to see within 30 to 60 days a lot of the rigs running today idled,” he said. “Most people are in shock at how this can happen with a Republican administration.” - washingtonpost.com
Edwards says he is surprised by how aggressively Trump is pursuing tariffs that are creating pain for the industry, including boosting steel and aluminum tariffs to 25 percent. “Everybody was curious about the idea of using them as a negotiating tool,” he said. “I don’t think anybody in our industry thought steel products going into oil and gas wells would be such a big part of it.”
Donald Trump promised to unleash an energy renaissance that would lock in U.S. dominance over oil and gas. But that is not how things are working out for America’s drillers, fracking firms and equipment suppliers, including the company founded by Trump’s own energy secretary.
The market value of Liberty Energy has fallen by nearly half since its former CEO, Chris Wright, joined Trump’s Cabinet. The company reports it is among many in the industry struggling with the challenges heightened by Trump’s agenda, including “tariff impacts, geopolitical tensions, and oil supply concerns.”
Three months into the new administration,the price of U.S. oil has plunged to below the drilling profitability threshold of about $65 per barrel and the industry is ailing.
Companies are opting not to add new wells out of fear they will lose money. The number of active rigs in Texas is lower now than it has been since the nation was climbing out of the pandemic. The president’s tariffs are meanwhile driving up costs in U.S. oilfields, leaving firms hesitant to invest in expanding production.
“It is truly affecting everybody,” said T. Grant Johnson, president of Lone Star Production Company, an oil exploration firm in Texas. “There was a lot of talk of, ‘drill baby, drill.’ But these companies are not going to drill if the economics aren’t there. All this fear and uncertainty is causing people to be far more cautious.”
He warns the challenges threaten political blow-back for Trump.
“If this pain runs too long and spills into the midterm elections, it could become very uncomfortable for the people who got us here,” said Johnson, who chairs the Texas Independent Producers and Royalty Owners Association. “And this would all be for naught.”
The administration blames market swings disconnected from Trump’s policies. Wright predicted in an interview that the president’s plans ultimately will increase U.S. energy dominance and bring the industry prosperity.
“Prices are going to spike up and they’re going to spike down in the short term,” Wright said. “That’s based on sentiment and perceptions and guesses. You know, that’s not what the administration has anything to do with. We’re changing policy.”
But many oil executives say Trump’s actions are a major reason production is going down, not up. Demand is dropping amid economic anxieties triggered by Trump’s trade war. Soaring prices for steel and rig parts are chilling investment. And a surge in pumping by OPEC+ nations — which analysts say is happening in large part because Trump demanded it in his pursuit of lower gasoline prices — has created a market glut.
Gas prices remain roughly what they were in October despite Trump’s gutting of oilfield environmental rules. The U.S. is no less reliant on foreign oil today than it was when Joe Biden left office.
Oil is not the only corner of the energy industry struggling. The president’s policies imperil major clean power projects designed to help address the very energy shortages that moved Trump to declare a national energy emergency. Trump’s order to halt all regulatory approvals for wind farms on his first day in office is causing projects to be delayed and abandoned. Offshore wind projects were hit particularly hard because the administration controls approvals in federal coastal waters.
The president had signaled many of the actions on the campaign trail, including a vow to push gas prices below $2 per gallon, but there was an expectation among executives that he would temper his moves to limit disruption. He didn’t.
The tariffs Trump imposed have forced up the price of certain parts crucial to pulling oil from the ground. Drilling components from China that previously cost nearly $6,500 before Trump took office are going up to more than $15,000, according to Cape Tryon, an industry consulting firm.
“Bracing for a crisis” is how research firm Wood Mackenzie characterizes the state of the oil industry. Bryan Sheffield, a major investor in shale oil, told Bloomberg recently that his sector could be facing a “bloodbath.”
The tone was similarly ominous in an anonymous survey of 130 fossil fuel and related companies published by the Federal Reserve Bank of Dallas in late March.
“The administration’s chaos is a disaster for the commodity markets,” one company responded, calling the “drill, baby, drill” mantra a myth and the tariff policy unpredictable.
“I have never felt more uncertainty about our business in my entire 40-plus-year career” another wrote. Another comment was even more blunt: “This is not ‘energy dominance.’”
The administration is making no apologies, taking credit for gas prices that average around $3.16 per gallon of regular nationwide. The price at the pump does not reflect the surge of drilling Trump promised, analysts say, but a challenging economy that leaves the U.S. energy industry in a precarious place.
“Those gas prices are not going to make the economy blossom if they are low because of broader economic weakness,” said Kevin Book, managing director at ClearView Energy Partners, a research firm. “It is not all about the price. It is also a matter of why the price is low.”
Book said that any gains the industry made through all the regulatory changes Trump ordered – including gutting pollution rules, eliminating climate policies and rolling back endangered species protections — are being more than offset by the market disruptions his policies are magnifying.
In Texas, the national leader for wind energy, the state legislature has advanced four bills that would introduce new challenges for renewables, particularly wind, said Olivier Beaufils, lead analyst for the central U.S. at market analytics firm Aurora Energy Research.
Texas historically has been a free market allowing energy companies to build whatever makes financial sense, he said, but that’s now starting to change.
“There is a national context that is also giving some steam to people that just don’t like wind,” Beaufils said of the Texas bills. |
